Before the Federal Reserve was established, a single rumor could trigger a devastating bank run, wiping out life savings and plunging families into poverty. This article explores the fragility of the pre-Fed financial system, where the imposing appearance of bank vaults belied the precarious movement of money behind the scenes.
The narrative recounts how public panic, often sparked by unfounded whispers, led to a cascade of withdrawals that banks could not cover. Without a central bank to inject liquidity or restore confidence, these runs frequently caused banks to fail, leaving depositors with nothing.
This historical backdrop underscores the rationale behind the creation of the Federal Reserve in 1913—a central institution designed to stabilize the banking system, prevent runs, and protect the economy from the kind of chaos that once destroyed countless families.